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Interactions of Unconventional Monetary Policy Measures with the Euro Area Yield Curve

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  • Lubomira Gertler

    (Faculty of National Economy, University of Economics in Bratislava)

Abstract

We study how unconventional monetary policy affects the shape of the yield curve and, conversely, the predictive power of short-run yield curve dynamics for the policy event. Two types of unconventional monetary policy measures are analysed: i) announcements and actions related to extension of central bank liquidity and ii) secondary market purchases. We find that ex-post effects on the shape of the yield curve differ substantially both in size and direction. Specifically, sovereign debt purchases are found to instantaneously lower and flatten the curve, while liquidity related actions steepen the curve, albeit mildly and for a very limited time. Further to that, the predictive power of yield curve dynamics in relation to policy implementation is supportive only for the latter signal. These findings broadly align both with the design of unconventional policy measures and with the horizon in which they are deemed to become effective.

Suggested Citation

  • Lubomira Gertler, 2015. "Interactions of Unconventional Monetary Policy Measures with the Euro Area Yield Curve," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(2), pages 106-126, March.
  • Handle: RePEc:fau:fauart:v:65:y:2015:i:2:p:106-126
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    More about this item

    Keywords

    yield curve; Nelson-Siegel term structure approximation; liquidity; unconventional monetary policy;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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